The tax exemption was the central part of a case the EU filed with the trade organization against the US in December 2014.

Under the ruling the US should withdraw the subsidy within 90 days, it can also appeal.

The tax cut was provided by the state of Washington in 2013 to ensure the wings for Boeing's 777X widebody plane were made only there. The plane can seat more than 400 passengers and is an updated model of the 777. It is due to enter service at the end of the decade.

The WTO said giving Boeing the special and very low business and occupation (B&O) tax rate was unlawful because it required the company to use local rather than imported materials which distort trade.

"The Panel has found that the European Union has demonstrated that the B&O aerospace tax rate for the manufacturing or sale of commercial airplanes under the 777X program... is a subsidy contingent upon the use of domestic over imported goods [and is] prohibited," said the WTO in its ruling.

“We expect the US to respect the rules, uphold fair competition, and withdraw these subsidies without any delay,” said EU Trade Commissioner Cecilia Malmstrom as cited by the Wall Street Journal.